DCIT 8(1), MUMBAI vs. CAPITA OFFSHORE SERVICES P.LTD, MUMBAI

order ,dated 18/09/2012 of the CIT(A)-15,Mumbai,the Assessing Officer (AO)and the assessee have filed cross-appeals for the year under consideration.The assessee company,a wholly owned subsidiary of Capita Group plc(Capita),UK is engaged in Business Process Outsourcing (BPO) Services.The return of income was filed by the assessee on 31/ 10/2007,declaring loss of Rs.11,17,00,490/-.The assessment was completed on 19/01/ 2011, determining its income assessee at a loss of Rs.4,43,16,384/- u/s. 144C(3) r.w.s. 143(3) of the Act. 2.Vide its application dated 22.02.2015,the assessee has filed additional grounds of appeal and has requested to exclude two comparables (Triton Corp and Maple E Solution)that were selected by it.It had also requested to revise margin of one of the comparables,namely RSystems International Ltd.The AO has also filed revised grounds of appeal wherein he has sought exclusion of five comparables selected by the Transfer Pricing officer. During the course of hearing before us,the Authorised Representative(AR)stated that additional grounds raised by the assessee did not require investigation of facts,that same were legal in nature.The Departmental Representative(DR) left the issue to the discretion of the Bench. He referred to the revised grounds filed by the AO.

,that both the matters were different, 6.We have heard the rival submissions and perused the material before us.We find that the assessee had selected 15 comparables,namely,Ace Software Exports Ltd.(ASEL),Allsec Tech -nologies Ltd.(ATL),Apex Advanced Technology Pvt.Ltd.(AATPL),Cosmic Global Ltd. (CGL),C S Software Enterprise Ltd.,(CSSEL),Flextronics Software Systems Ltd.(Seg.)- (FSSL),Fortune Infotech Ltd.(FIL),Genesys International Corporation Ltd.(GICL),Maple E Solutions Ltd.(MESL),Pentasoft Technologies Ltd.(PTL),R Systems International Ltd.(RS - IL),Spance Telesystems and Solutions Ltd(seg)-(STSL),Transworks Information Services Ltd.(TISL),Triton Corp. Ltd.(TCL)and Wipro BPO Solutions Ltd. (WBSL),that the TPO had accepted eight comparables selected by the assessee and rejected the remaining seven compa -rables,that he added 17 new comparables and determined the ALP of the transaction at 30. 67%,being the average margins of 25 comparables,that he suggested an adjustment of Rs. 6,69,10,106/-,that the AO made the adjustments accordingly,that before the FAA,the assessee did not contest 11 comparables,that the FAA excluded 4 comparables from the final list of valid comparables,that 10 comparables were approved by the FAA to benchmark the IT.s, namely,Accentia Technologies Ltd.(ATL),Asit C. Mehta Financial Services Ltd.(ACMFSL), Caliber Point Business Solutions Ltd.(CPBSL),Eclerx Services Ltd.(ESL),HCL Conmet Systems and Services Ltd.-seg.(HCSSL),ICRA Techno Analyst Ltd.-Seg.(ICRA),Informed Technologies India Ltd.(ITIL),I Services India Pvt.Ltd.(ISIPL),Mold Tek Technologies Ltd. (MTTL).Before us,the AR has stated that it wanted reintroduction of one of the comparables, namely,ASEL.He also requested for exclusion/re computation of margins of three comparabl -es,namely RSI,MESL and TCL. 6.1.We find that the DR has requested for deleting 5 comparables from the final list.We are of the opinion that the AO cannot challenge the comparables selected by the TPO before us. He is barred to question the decision of the TPO in that regard.In the case of Maersk Global Service Center(India)Pvt.Ltd.(133ITD543),the Tribunal had held as under :

37. As per section 92CA(4), at the material time :'On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm's length price determined under sub-section (3) by the Transfer Pricing Officer'. It means that the assessment is to be made by the AO having regard to the ALP determined by the TPO, which is not binding on him. In such a situation the order of the TPO u/s 92CA(3) constitutes not more than a mere input to the AO. The AO is competent to make suitable adjustments to the ALP determined by the TPO or observe departure there from. Once an appeal is preferred before the CIT(A) against the order of AO on the addition towards adjustments to the ALP, the whole exercise done by the TPO, which stands bodily adopted in the IT(TP)A/7141/Mum/2012 & ITA/7157/Mum/2012 M/s. Capita Offshore Services Pvt. Ltd. assessment order in case no adjustment is carried out by the AO to the ALP determined by the TPO, automatically stands challenged. As only the assessee can file appeal before the first appellate authority and not the Revenue, naturally it is a forum for the redressal of the grievances of the assessee and not the Revenue. In such a situation, the duty of the ld. CIT(A) gets restricted to examining the order appealed before him to find out whether the assessee has rightly challenged it. As the assessee's challenge will only be to the points decided against him, there is no question of the CIT(A)'s duty to examine the order to the prejudice of the assessee.

38. Here it is important to note we are discussing about the duties of the ld. CIT(A) in contradistinction to his powers u/s 251. Under clause (a) of sub-section (1) the CIT(A) in an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment. The exercise of power of enhancement under sub-section (1) is subject to the condition set out in sub-section (2) as per which he is obliged to issue a show cause notice to the assessee against such enhancement. Thus it is axiomatic that, whereas the duties have to be invariably discharged, the exercise of powers is optional depending upon the facts and circumstances of each case. Disposing the grounds taken by the assessee in its appeal is the duty of the CIT(A), but to enhance the assessment is a power which may or may not be exercised. Non-discharge of duties by the CIT(A) affects the validity of his order, but not exercising any power does not have this impact. As the power to modify the order appealed against to the prejudice of the assessee cannot be equated with his duty, in our considered opinion it cannot be heard that the ld. CIT(A) ought to have examined the work done by the AO/TPO to adversely affect the assessee's interest. It is normally argued on behalf of the Revenue that the powers of the CIT(A) are co-terminus with that of the AO inasmuch as he can do anything which the AO should have done but failed to do. Here also it is important to note that this position is only in the realm of his powers and not duties. The duty of the CIT(A) is to dispose of the appeal on the grounds raised

before him and not to do redo assessment. Thus we do not find any logic in accepting the contention of the ld DR that the CIT(A) was duty bound and hence should have examined the comparables given by the assessee to find out whether or not these were, in fact, comparable.

39. Adverting to the facts of the instant case it is seen that the assessee furnished a list of nine comparable cases. What to talk of the TPO giving reasons for their non-acceptance, he simply set aside all such cases by mentioning in one line that "No companies were identified as comparables". By reason of the fact that the TPO did not discharge his obligation of distinguishing the cases cited by the assessee as comparable, in our considered opinion, the learned CIT(A) was justified in retaining all such nine cases in his list of comparables for determining the ALP.

40. Having exhausted the argument that the ld. CIT(A) should have examined the cases cited by the assessee as comparable, the ld. DR then took upon herself the task of distinguishing some of such cases. Referring to the material on record, it was stated that in certain cases, the comparison was not proper. She argued that such cases be excluded from the final list drawn by the ld. CIT(A) for the purposes of determining the ALP. When the learned AR objected to this argument advanced on behalf of the Revenue by stating that the learned Departmental Representative could not improve the order of the TPO, the learned Departmental Representative pressed into service the Special Bench order in the case of Dy. CIT v. Quark Systems (P.) Ltd. (2010) 38 SOT 307/4 ITR (Trib.) 606 (Chd.) (SB)].

41. Primarily we need to decide as to whether the learned Departmental Representative, while arguing the appeal, can validly improve the order of the AO/TPO by contending that the assessing authority was wrong in accepting a particular claim of the assessee. In the case of Quark Systems (P.) Ltd. (supra) the assessee by way of additional ground, contended before the Tribunal that a particular case of high profit rate was not comparable with that of the case before the bench on account of positive reasons pointed out and hence the same be excluded. The bench observed in para 30 of the order that due to new implementation of the transfer pricing legislation in India both the tax payers as well as consultants were not fully conversent with this branch of taxation. It was also noted that the case sought to be removed by the assessee had extra ordinary profit and huge turnover besides difference in assets and other characteristics. The bench while IT(TP)A/7141/Mum/2012 & ITA/7157/Mum/2012 M/s. Capita Offshore Services Pvt. Ltd. holding that the assessee could not be stopped from pointed out that such case was wrongly taken as a comparable, remitted the matter to the file of A.O. for de novo examination of the assessee's stand in this regard. Thus it is apparent that the special Bench decision in Quark Systems (P.) Ltd. (supra) restored the matter to the file of the Assessing Officer for fresh examination in the light of the fact that those were the initial years of implementation of transfer pricing provision and the tax payers were not fully conversant with such provisions. This decision is thus not of any help to the Revenue.

42. We are unable to accept the contention of the ld. DR for excluding certain cases not rejected by the TPO but which in her opinion did not pass the test of comparability. It is evident that Departmental Representative has the duty to defend the order of the Assessing Officer while arguing the appeal filed by the Revenue. He is fully competent and free to support the reasoning of the Assessing Officer from any other angle so as to put forward a strong case of the Revenue. There is a marked distinction between supporting order of the AO/TPO by the Departmental Representative on one hand and finding flaws in the order of the AO/TPO in an attempt to show that the AO/TPO failed to do what was required to be done by him. In our considered opinion if the Departmental Representative is allowed to fill in the gaps left by the AO/TPO it would amount to conferring the jurisdiction of the CIT u/s 263 to the Departmental Representative, which is not permitted by the statute. Let us take another situation. Suppose a particular deduction is permissible on the cumulative satisfaction of three conditions. The AO examines the case and finds the very first condition as lacking. Without examining the fulfillment or otherwise of the other two conditions, he rejects the claim. In that case if such first requirement is subsequently found to be fulfilled in the appellate proceedings, the Departmental Representative can very well point out to the tribunal that the other two conditions were also not fulfilled. By so contending the DR cannot be said to set up a new case. Rather it would amount to supporting the view point of the Assessing Officer on the question of deduction. But in no circumstance the Departmental Representative can be allowed to take a stand contrary to the one taken by the AO/TPO.